Match me with a construction loan broker
A construction loan does not work like a normal home loan. The lender does not hand over the money at settlement — it pays your builder in six instalments as the work is finished, and you are only charged interest on what has been paid out so far. That means your repayment starts small and climbs every time the builder hits a stage.
This calculator shows you that climb. Put in your build cost, your rate and how long the build runs, and it gives you the repayment at each of the six stages, the total interest you will pay while the house is going up, and the repayment you land on once it is finished.
The six stages a lender pays on
Almost every Australian lender uses the same split. The percentages are of the build contract, not of your total loan.
- Deposit — 5%. Paid to the builder to start.
- Base or slab — 15%. The foundation is down.
- Frame — 20%. The skeleton is up and approved.
- Lock-up — 25%. Walls, roof, windows and doors on. The biggest single payment.
- Fit-out or fixing — 20%. Kitchen, bathrooms, cabinetry, internal work.
- Practical completion — 15%. Finished and ready to move into.
Before each payment goes out, the lender sends a valuer to confirm the work has actually been done. That inspection is why a stage payment takes five to ten working days rather than arriving the moment your builder invoices you.
Why the staged payments save you real money
On a $400,000 build at 6.10% over nine months, interest during construction comes to roughly $9,600. If the lender had released the whole $400,000 on day one, you would have paid about $18,300 over the same nine months. The staging saves close to $8,700 — and none of it required you to do anything.
The flip side is the part people miss. During the build you are paying interest only. The month after practical completion, the loan switches to principal and interest, and on that same $400,000 the repayment goes from about $2,033 to about $2,446. Budget for the finished number, not the comfortable one you have been paying all year.
What to put in each box
- Cost of the build. Your builder’s fixed-price contract figure. Add your contingency if you have borrowed for one.
- Already borrowed. The land loan if you bought the block first, or your current mortgage balance if you are renovating. That amount is drawn from day one and carries interest for the whole build.
- Interest rate. Construction loans usually sit at or near standard variable rates, so use the rate your lender has quoted.
- Build length. Nine to twelve months is typical for a new house, four to eight for a major renovation. Lenders normally allow twelve months and will want an explanation past that.
- Loan term. The total, including the build period. Thirty years is standard.
Costs the calculator does not include
The interest figure is the one people get wrong, but it is not the only cost sitting outside the builder’s quote:
- A progress inspection fee at each of the six stages.
- Council and development application fees, commonly $2,000 to $8,000.
- Architect or draftsperson drawings, often 5% to 10% of the build cost.
- Rent somewhere else if you cannot live in the house while the work runs.
- A contingency of 10% to 15% of the build, which is far easier to borrow at the start than to go back for halfway through.
How much a lender will actually advance
A construction loan is assessed on what the property will be worth when it is finished, not what it is worth today. Most lenders go to 95% of that completed value for structural work with council approval and a licensed builder on a fixed-price contract. Managing the build yourself drops you to somewhere between 60% and 80%, and narrows the field of lenders considerably.
Policy varies more here than in any other kind of lending, which is why the cheapest advertised rate is often the wrong answer. Our guide to home renovation loans sets out the four ways to fund the work, and how to increase your borrowing capacity covers the limit most people run into first.
Match me with a construction loan broker, or compare the top brokers in your city.